Business still nervous despite balanced economy

In line with other business surveys, the latest Franchising Confidence Index shows continuing uncertainty about business prospects in the coming year. According to Dr Callum Floyd of Franchise Consultants, which conducts the quarterly survey, ‘The April Index demonstrated continued subdued sentiment due to a variety of factors; not least, decreasing demand, increasing labour and other operating costs, and reduced labour supply.’

It might be expected that the increase in minimum wage, uncertainties over a possible Capital Gains Tax and the recent events in Christchurch would all have had an impact on reporting during this quarter, despite economic reports that the New Zealand economy is ‘unusually balanced’ and that more growth is expected this year before a planned slow-down in 2020.

Sentiment reductions were reported for access to suitable franchisees and staff, operating costs per franchisee, franchisee profitability and access to financing (which hit an all-time low at negative 31 percent). Meanwhile, increases were reported for growth prospects, and to a lesser degree, available suitable locations.

Franchisor outlook for general business conditions (net negative 15 percent) dipped after a small lift in January sentiment at net negative 3 percent, whilst Service Providers sentiment negated the positive gains seen in January of net 19 percent, to indicate sentiment of net 0 percent.

On the funding front, Daniel Cloete of Westpac notes that with property prices going sideways or down in Auckland (the largest market), some people may find it more difficult to find the equity to do fully-secured lending. 'This that may contribute to concerns over access to finance,' he told Franchise New Zealand. 'However, some systems would find no issues in getting lending, and in general our customers are doing well and are very profitable.'

Franchisor comments

As always, franchisors were asked for qualitative responses on how things were looking in their sector. 26 franchisors responded from industries such as retail, cleaning, hospitality, home services, agriculture, construction and sub-trades.

Comments indicated some real challenges, particularly in the retail environment; however, there were positive feelings within some other industries. Challenges were attributed to increasing labour cost and availability levels, lower margins due to cost of materials, difficulty in finding good franchisees and the impact of general changing conditions.

• Finding good staff is now very difficult - proving to be an ongoing problem daily. Operating costs are also challenging - raw materials and employment costs continually increasing.
• Retail is flat. Lack of confidence starting to show. Higher wages will be a significant issue
• We seem to be on a 6 month up which is nice to see. Fingers crossed for the next 6 months
• Access to quality franchise enquiries remains number 1 challenge.

It’s apparent that the decline in some retail sectors means that while good sites are becoming increasingly available to other premises-based businesses, the shortage of suitable franchisees and staff means that there are more opportunities available than people to take them up. That’s good news for franchise buyers, who will have more options. It may encourage existing franchisees into multi-unit operations (perhaps with family members) where the business model allows for that.

Summary

‘Franchising, as demonstrated by other more general New Zealand business surveys, is not alone in lacking strong confidence toward future business conditions,’ says Callum. ‘As we have indicated previously, the key for franchisors will be to continue to take positive business and franchise system improvement steps. We advise continuous thought and initiatives to focus on ways to project momentum forward thus ensuring the continued improvement of both franchisee and franchisor businesses.’

The data and analysis presented represents the views of 26 Franchisors and 9 Service Providers collected between Monday 1 April and Friday 5 April 2019.

Read the full survey report here

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